Tag Archives: Reserve tiering

Banks’ Response to Reserve Tiering

In a CEPR discussion paper, Andreas Fuster, Tan Schelling, and Pascal Towbin analyze how banks respond to changes in the threshold level above which reserves held at the central bank are charged negative interest:

… exploiting an unexpected decision by the Swiss National Bank in September 2019 to change the threshold calculation without taking any other policy actions. This change led to a large increase in overall exemptions, but with variation across banks. Using a difference-in-differences approach, we find that banks that experience a larger increase in their exemption threshold tend to raise their SNB sight deposit holdings, funded through more interbank borrowing and more customer deposits. The interbank market is important for the funding choice: banks with low collateral holdings (a proxy for market access) use less interbank borrowing and instead grow their customer deposits; they also pass on negative rates on a smaller share of their deposits. Effects on bank lending behavior are moderate; if anything, banks that benefit from a larger increase in the exemption threshold tend to charge higher spreads and take less risk.